Tips for First-Time Homebuyers as Canadian Affordability Continues to Decline

First-time homebuyers in Canada are confronted with the most difficult real estate market in generations.

According to a TD Economics report, skyrocketing home prices and massive interest rate increases have pushed affordability to its lowest point in decades, effectively shutting out some first-time buyers.

Historically, first-time homebuyers accounted for more than half of all purchases. However, since the pandemic began, that share has been declining, reaching a low of 46.8 percent in June 2021 as real estate investors and multiple-property owners made up the difference, according to TD.

Although home prices are starting to fall, overall affordability has not improved.

“The price drop has not offset the effect of higher interest rates,” RBC economist Robert Hogue said. “Our affordability metric continues to deteriorate.”

Dream of ownership is not dead

Real estate experts say many first-time homebuyers will face a steeper than usual learning curve. Still, they claim some tricks and tips can help.

“The dream of home ownership is not dead,” Hogue said. “I believe it can still be accomplished by being flexible about when and how it will be accomplished.”

According to Despina Zanganas, a Toronto Realtor with PSR Brokerage, the first call prospective buyers should make is a real estate agent.

“People frequently wait too long to try to find a Realtor,” she explained. “I recommend contacting Realtors a year before you plan to buy.”

Buyers frequently rely on word of mouth to find a real estate agent, but Zanganas advises that they shop around.

“It’s critical to find someone with whom you connect and who is right for you,” she said.

The next step is to determine what you can afford, according to Zanganas.

“I’ve had first-time homebuyers tell me they want to buy a house in (affluent Toronto neighborhood) Rosedale with a $900,000 budget,” she explained. “A mortgage broker can assist you in properly setting your expectations.”

“They’ll also highlight any additional closing costs,” she adds. “Many first-time buyers do not consider the extras.”

The federal government has launched several programs aimed at helping first-time buyers

Meanwhile, the federal government has launched a number of programmes to assist first-time home buyers.

The recently announced Tax-Free First Home Savings Account allows new homebuyers to save $40,000 tax-free toward the purchase of their first home in Canada.

“It’s a powerful way to save for a first home,” said James Laird, co-CEO of Ratehub.ca and president of CanWise mortgage lender.

It’s an improvement over the Home Buyers’ Plan, which allows Canadians to withdraw up to $35,000 from a Registered Retirement Savings Plan for a down payment, but it must be repaid within 15 years, he says.

Nonetheless, the new registered plan is set to begin next year, so Laird believes it will be a few years before it can assist buyers.

Another new program, the First-Time Homebuyer Incentive, offers up to 10% off a new home purchase through a government-backed shared-equity mortgage.

However, Laird advises new buyers to avoid the programme, noting that co-owning a home with the government is a “unusual” scenario that could backfire.

“We believe it is quite harmful,” he said. “The government becomes a co-owner… they do not pay maintenance or property taxes, but they share in potential appreciation.” We find it flawed from a variety of perspectives.”

The Canada Mortgage and Housing Corporation’s mortgage loan insurance allows buyers to pay a lower down payment in exchange for a fee of up to 4%.

“The fee is clear and upfront, and there is no ambiguity about who owns what,” Laird explained.

Mortgage loan insurance, on the other hand, is only available for properties with a purchase price of less than $1,000,000. According to Laird, the maximum should be higher in cities such as Toronto and Vancouver.

“The government has no interest in assisting wealthy people in purchasing multimillion-dollar homes,” Laird said. “But you’re not some rich country club guy if you buy a $1.2 million semi in Toronto with no parking.” You’re looking for a place to live for your family.”

Meanwhile, even after they achieve homeownership, first-time buyers should expect to feel “absolutely sick to their stomach,” he said.

“The typical first-time home buyer’s emotional roller coaster.”

According to real estate agent Zanganas, first-time homebuyers are “really afraid of losing their shirts and making the wrong decision.”

“I always tell them that once they sign on the dotted line, they’ll wonder if it was the biggest mistake of their lives.” Everyone goes through it.”

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